MORNING VIEW: Markets open on an optimistic note as Trump’s response to China showed his bark was worse than his bite

Markets were for the most part stronger this morning, Monday June 1, following relief that United States President Donald Trump’s response last Friday to China’s plans to impose national security laws in Hong Kong did not shake market sentiment because he did not meddle with the phase one US-China trade deal, or increase sanctions.

Asian-Pacific equities indices were up strongly, as were major western pre-market equity index futures, and the base metals were for the most part stronger too, helped by some encouraging Chinese manufacturing data.

  • China’s Caixin manufacturing purchasing managers index (PMI) climbed to 50.7 in May from 49.3 in April.
  • Asian-Pacific equities are at three-month peaks as Trump avoids rocking the boat.
  • Gold prices stronger as dollar falls.

Base metals
Three-month base metals prices on the London Metal Exchange were up across the board by an average of 0.9%. Holding the complex back were aluminium ($1,548.50 per tonne) and zinc ($1,988.50 per tonne) that were both up by 0.1%, while the rest were up by an average of 1.3%, with copper recently quoted at $5,453 per tonne.

The most-traded base metals contracts on the Shanghai Futures Exchange were mainly firmer; the exception was July aluminium that was off by 0.1%, while the rest were up by an average of 1.9%, with July copper up by 1.6% at 44,500 yuan ($6,234) per tonne.

Precious metals
Spot gold prices were firmer this morning with prices up by 0.6% at $1,740 per oz, The other precious metals are stronger with silver ($18.32 per oz), platinum ($841.60 per oz) and palladium ($1,971 per oz), up by 2.6%, 0.9% and 1.3% respectively.

Wider markets
The yield on benchmark US 10-year treasuries remains rangebound and was recently quoted at 0.67%, this after being at 0.66% at a similar time on Friday – the range in recent weeks has been 0.61-0.74%.

Asian-Pacific equities were stronger this morning: the Nikkei (+0.84%), the ASX 200 (+1.1%), the Hang Seng (+3.3%), China’s CSI 300 (+2.55%) and the Kospi (+1.75%).

The US dollar index is weaker and was recently quoted at 97.98 – it started to break out of the bottom of its 98.54-100.87 range on May 28, a range it had held since early April. Social unrest in the US over the killing of George Floyd in the run-up to the US presidential election may be undermining the dollar while the US environment becomes more political.

Given this dollar move, it is not surprising that the other major currencies we follow are firmer: the euro (1.1137), the Australian dollar (0.6750) and sterling (1.2394), although the yen (107.62) is slightly weaker.

The Chinese yuan (7.1367) has firmed, it hit a weak point of 7.1770 on May 27, on concerns about how Trump would respond to its handling of Hong Kong.

Key data

Monday’s economic data showed Japan’s manufacturing PMI fell to 38.4 in May, from 41.9 in April. As mentioned above China’s Caixin PMI climbed, but on Sunday the release of official PMI data showed manufacturing PMI came in at 50.6 in May, from 50.8 in April, although non-manufacturing climbed to 53.6 in May from 53.2 in April.

Later, there is more PMI data out across Europe and the US, with additional data on US construction spending.

Today’s key themes and views
Optimism that the reopening of economies will bring with it improved demand and with Trump showing some restraint on the geopolitical front, have provided a risk-on environment that is supporting most asset classes.

News that the Covid-19 is still spreading rapidly in countries like Brazil, Peru, India and Russia does raise the risk that the virus could spread to mining regions, so while the first dominant impact hit global demand the secondary impacts could hit production in countries that have not been able to get the virus under control.

Gold prices, along with the other precious metals are rising along with the other asset classes, with gold also benefitting from the weaker dollar.